Here are the key things you need to know before you leave work today (or if you already work from home, before you shutdown your laptop).
MORTGAGE/LOAN RATE CHANGES
No changes to report today.
TERM DEPOSIT/SAVINGS RATE CHANGES
None here either.
SENTIMENT SAGS
Consumer confidence deteriorated in April, led by a pessimistic turn in the forward-looking components of the survey. ANZ-Roy Morgan Consumer Confidence fell 4 points to 82.1, close to lows seen during the Global Financial Crisis, but still slightly above the more recent pandemic lows. The fall was most pronounced in Wellington.
STILL MAKING SUBSTANTIAL EXCESS PAYMENTS
Perhaps rather remarkably, given the supposed rise in household budget stress, the March C35 data released today shows that households are still salting away $3.5 bln per quarter in extra mortgage repayments over and above the $7.1 bln in scheduled repayments. But that excess is now under 50% of the scheduled repayments, the lowest it has been since this data started to be collected a decade ago. (It was double the scheduled repayments in December 2016). And that might be because interest is taking a far larger chunk of the repayments, now exactly half, the most ever.
CREDIT CONDITIONS EASING
In its March edition of its half-yearly Credit Conditions survey, the RBNZ reports that banks don't expect loan demand to change of the next six months for mortgage, consumer or corporate loans. But that is far better than the negative outlook a year ago. The same bank respondents no longer see regulatory changes as a factor affecting the availability of 'credit' (debt).
MORE SOCKED AWAY
The RBNZ's foreign currency intervention war chest (F5) rose from just under $20 bln in February to $20.7 bln in March, another chunky +$700 mln bolstering since July 2023 when they spent almost $4 bln bolstering the capacity. To be fair they still have a long way to go before they have reserves that the currency markets would take seriously. (NZ$20.7 bln is only a bit over US$12 bln at today's exchange rate.) But at least they are working toward that in a purposeful way.
TAXES ON WORKERS ARE LOW
New data out from the OECD shows that taxes on employee earnings in 2023 were low in New Zealand. The average single worker faced a net average tax rate of 21.1%, compared with the OECD average of 24.9%. In other words, in New Zealand the take-home pay of an average single worker, after tax and benefits, was 78.9% of their gross wage, compared with the OECD average of 75.1%. Taking into account child related benefits and tax provisions, the employee net average tax rate for an average married worker with two children in New Zealand was 10.9% in 2023, which is the 28th lowest in the OECD, and compares with 14.2% for the OECD average. This means that an average married worker with two children in New Zealand had a take-home pay, after tax and family benefits, of 89.1% of their gross wage, compared to 85.8% for the OECD average. For Australia, the single worker rate was 24.9% (at the OECD average), and the single earner, two children rate across the ditch is 18.0%.
HIGH BUT NOT HIGHEST
Our petrol pump prices might seem high at present (and they are) but are well off the peak they reached on June 17, 2022. From then the crude oil price is virtually the same (US$118.50/bbl then, US$116.71/bbl now). But our currency has turned in our favour so these prices are NZ$183/bbl then, NZ$150/bbl now, and that is a +18% gain. By the time that raw material ends up at the pump, the change has been a -9% fall since that peak, $3.23/L then, $2.94/L now. (Auckland prices are higher of course due to the regional fuel tax.)
STILL COMMITTED TO R&D
A Stats NZ survey for 2023 is reporting that business R&D spending increased +$540 mln between 2022 and 2023 to $3.7 bln. The +17% increase is the largest annual increase since 2018, when data on R&D began to be collected annually. Apparently there was a total of 21,000 full-time staff working on R&D in 2023, with the number of researchers increasing by +23% from 2022, to 14,000. But I am sceptical. There are tax benefits for claiming work is for R&D which may have the effect of embellishing the survey data - and little progress is being recorded in 'measured sector' productivity. Yes, R&D and 'productivity' are different things, but in the long run good R&D should improve productivity, especially when the increases in R&D are claimed to be so large. Not seeing that productivity increase over these five years.
SWAP RATES TURN BACK UP
Wholesale swap rates are have likely turned back up today and probably on global influences. Two year swap rates might be up almost +10 bps. Our chart below will record the final positions. The 90 day bank bill rate is -1 bp lower at 5.63%, a level it has hovered around for more than 45 days. The Australian 10 year bond yield is up +7 bps at 4.50%. The China 10 year bond rate has firmed +1 bp to 2.27%. The NZ Government 10 year bond rate is up +6 bps to 5.06% and the earlier RBNZ fix was at 4.90% and +2 bps firmer. The UST 10yr yield is up +8 bps (from Wednesday) at 4.70%. Their 2yr is now at 5.00%, so the curve is now -30 bps and a slightly lesser inversion.
EQUITIES MIXED
The NZX50 is down -0.9% in late trade and heading for a weekly rise of +0.7%. The ASX200 is down -1.3% in early afternoon trade, and heading for a net +0.3% rise for the week. Tokyo is up +0.3% in its opening Friday trade so far and heading for a net +1.4% weekly gain. Hong Kong is up another +1.5% today and on the way to a spectacular +6.9% weekly jump. Shanghai is up +0.5% but will be lucky to end with a +0.3% weekly gain. Singapore has opened with a very minor +0.1% rise. On Wall Street the S&P500 closed its Thursday trade down -0.5% and if this holds tomorrow it may end its week with a +0.9% net gain. But the excellent Google and Microsoft earnings reports after the market close might move markets tomorrow.
OIL FIRMISH
The oil price is on hold today from this time yesterday at US$83.50/bbl in the US, while up +50 USc to US$88/bbl for the international Brent price.
GOLD IN ANOTHER MINOR SLIP
In early Asian trade, gold is down another -US$2 from this morning, now at US$2331/oz but up +$11 from this time Wednesday.
NZD IN MINOR RISE
The Kiwi dollar has risen today, up less than +¼c to 59.7 USc. Against the Aussie we are little-changed at 91.4 AUc. Against the euro we are firm at 55.6 euro cents. This all means the TWI-5 is now at 69.3 and up +20 bps.
BITCOIN LOWER
The bitcoin price has slipped to US$64,483 and down -3.1% from this time Wednesday. Volatility of the past 24 hours has been modest +/-1.9%.
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69 Comments
Income taxes low?...could be lower without a decade of bracket creep
"New Zealanders faced the second-biggest tax raises in the developed world last year, the Organisation for Economic Cooperation and Development (OECD) says."
https://www.newshub.co.nz/home/politics/2024/04/new-zealanders-slapped-…
Edit: Oz gets the gold medal
https://www.abc.net.au/news/2024-04-26/australia-income-tax-rate-change…
Now we have statistical evidence that new zealand families are paying approximately 10% tax, why isn't this headline news? We are constantly hearing from the left wing media and left wing professors that the wealthy are not paying their share of tax, but there is really not much evidence to support this claim.
Anyone who is primarily accumulating their wealth from an income isn't really what I would consider wealthy. I think the biggest divide is between those who, rather than earning an income and paying tax, pay for their expenses with debt, leveraging assets to borrow money which is untaxed. That's how the super-wealthy do it and why the vast majority of the tax burden ends up getting lumped onto the working class rather than capital owners who comparatively pay very little in the way of tax as they can structure their finances in a way that basically avoids any tax.
It's more of a global issue, though, and would require global cooperation to put a stop to it, so it's doubtful we will see anything meaningful be done to change the status quo.
And nothing is in the making that suggests there will be any meaningful wage growth in the foreseeable future.
For one, we consume imports like an advanced developed economy but don't produce or build infrastructure like one.
https://www.thepost.co.nz/nz-news/350254777/wellingtons-12m-bus-stops-c…
Work has started on multi-million highway upgrades that is expected to cut congestion on a critical Queenstown road.
More than 40,000 vehicles pass through the State Highway 6 and 6A Frankton intersection at peak times each day.
Transport Minister Simeon Brown said $250 million upgrades to the highway would boost economic growth, reduce congestion and create safer and more reliable travel.
The work is expected to take four years and is part of a partnership between NZTA, Queenstown Lakes District Council, Downer New Zealand, Fulton Hogan, WSP, and Beca. Link
More time to plan this one (LOL Interesting to note the original spend on this was floated at 113M)
"Minister doubles budget to $250m" Government has upped the budget for the SH6 project from its original $113m to an eye-watering $250m.
Kā Huanui a Tāhuna, which includes Waka Kotahi, Queenstown Lakes District Council, Beca, WSP, Downer New Zealand and Fulton Hogan, is also behind the calamitous Queenstown Arterial Road Project, which has cost $128m, some $40m over its original budget, with the overspend picked up by ratepayers.
Work on the 1km road began back in 2019. It was one of then-PM Jacinda Ardern's pandemic-inspired 'Shovel Ready' schemes, with Central Government pledging $50m towards the cost of the non-state highway road.
Townsley is confident the SH6 project, known officially as the Queenstown NZ Upgrade Programme, won't face the same issues.
"We've had more time to design and more time to plan," he says, "and that gives me greater confidence with the project construction timeframes and the construction budget.
Lakes weekly 09.04.2024 https://lwb.co.nz/content/four-year-project-gets-moving/
My opinion...Im not sure they have the right mix of contractor(s) for the job... 'calamitous' should have rung some bells
100%. Can't speak for roading, but in 3 waters we often give budgetary rates for large scale strategic projects via consultants such as Beca, and our rates are usually include a 10 - 20% buffer. I don't recall ever pricing directly to the incumbent political party, or handing over our tonne rates for them to price inhouse.
I'm wondering if the job could be done for ~$150m, but political donors have spun some weasel words to greenhorn Simeon to up the budget.
The mighty Chris Joye does the Chicken Little on the Reserve Bank of Australia likely to be forced to warn that it could raise rates again. Solid reading as usual:
The US 10-year government bond yield, which is the global price of money, extended its march towards 5 per cent, breaching the influential 4.7 per cent technical barrier for the first time since October last year. While equities initially slumped as much as 1.6 per cent, they closed down only 0.6 per cent as investors kept their heads firmly in the sand.
Indeed, the market feels like it is trading very “long” and trying to defend this position, relentlessly reflexing into “hopeium”, encouraged by reckless central banks, that rate relief is always around the corner. One way or another, something has to give.
https://www.afr.com/wealth/personal-finance/you-heard-right-the-rba-cou…
New data out from the OECD shows that taxes on employee earnings in 2023 were low in New Zealand.
What's Michael Riddell claiming?
Striking chart for NZ, presumably reflecting abatement rules for Working for Families
"Perhaps rather remarkably, given the supposed rise in household budget stress, the March C35 data released today shows that households are still salting away $3.5 bln per quarter in extra mortgage repayments over and above the $7.1 bln in scheduled repayments. "
Why is that 'remarkable'?
We already know that many oldies / wealthies are unaffected by OCR rate changes.
The OCR is a crap, unjust, and inequitable tool. How about acknowledging that fact?
(Sorry. I know you do. But can we make it 'front and center'; and stop towing the (sponsored!) central bank line?)
"they" don't. They have paid off their mortgages and the OCR has no effect on them. Why does that fact escape you?
The OCR worked when most people had mortgages. Now? Many don't. And the 'many' are oldies.
Or put another way - averages completely disguise who is 'winning' - and who is getting shafted so 'winners' can continuing 'winning',
You assert "they are now asset rich and cash poor"
Prove it !!!
Meanwhile ... You can consider the fact that an 'asset rich' person can become 'cash rich' by selling their assets. Can the younger, with families, low equity who are building up assets do the same? Golly, no, they can't.
""they" don't. They have paid off their mortgages and the OCR has no effect on them. Why does that fact escape you?"
When your red mist fades, read what I actually said - "That would only be the case if they didn't have mortgages"
Then lets see your evidence that all "oldies" have no mortgage.
Today, about 12% of people aged 65+ are still paying a mortgage, and the same number are renting.
Not all, but the majority.
https://retirement.govt.nz/policy-and-research/retirement-income-policy…
Market participants predicting up to three more rate rises from the Reserve Bank of Australia, as inflation remains "sticky". Rate cuts no longer on the horizon. And yet their inflation rate is much lower than New Zealand, where people are still thinking a rate cut is coming ....
Yes, R&D and 'productivity' are different things, but in the long run good R&D should improve productivity, especially when the increases in R&D are claimed to be so large. Not seeing that productivity increase over these five years.
That's why your hear about "overcapacity": they aren't afraid that China is producing too many cars for the demand, they're afraid China is becoming too competitive. This car, the Xiaomi SU7, when released in China, sold out for the whole of 2024 in less than 24 hours. So it's definitely not in "overcapacity": it produces FAR too little for the demand it generates. Why so popular? Its starting price is less than $30k (215,900 yuan) with a better performance (and a very similar design) than a Porsche Taycan, which costs north of $100k. You're essentially buying a top-of-the-range Porsche at Chevy bolt prices... The main reason they can do it? This fully automated factory : they churn a car out every 76 seconds. Link
Interesting!
The company has said it expects to lose money on the SU7 and Lei said on Tuesday, while also noting that most of its suppliers also supplied the likes of Mercedes Benz (MBGn.DE), opens new tab, BMW (BMWG.DE), opens new tab and Audi.
"With such expensive suppliers and such expensive parts, the gross profit margin will not be very high," he said.
"I estimate that the gross profit margin will be around 5-10%," he said, adding that Xiaomi was discussing increasing production capacity and further cost support from suppliers. Source
Does it depend if R&D is for the purpose of productivity or just product development and branding and marketing purposes?
Just selling more shite with more bells and whistles (supercars, iphones etc) does not productivity make.
And unless the fruits of productivity are shared appropriately we are not seeing a collective benefit of said productivity.
Does it depend if R&D is for the purpose of productivity or just product development and branding and marketing purposes?
If you increase the value of a product by marketing and branding, that is a productivity improvement. Actually is a more economical way to improve productivity over some sort of manufacturing productivity improvement.
If you can add a layer of exclusively and style to a $10 handbag made in Italy by Chinese indentured servants and sell it for 3 grand, that's a huge productivity gain.
"Does fighting inflation always lead to recession? What NZ data tells"
https://www.rnz.co.nz/news/business/515288/does-fighting-inflation-alwa…
The RBNZ has been hammering NZ Inc. since Oct 2021 with rising interest rates.
See: https://www.interest.co.nz/charts/interest-rates/ocr
We've been either in Recession (TWICE!!!) or suffering extremely low growth since the same time.
See: https://www.interest.co.nz/charts/economy/economic-growth
So. Debate over.
Friday funnies...not so funny really for those that value freedom of speech
Caution: Oz politics
Trigger warning: Pauline Hansen
Might have to send that income tax data to my accountant and tell him to lift his game.
Blown away with how low this number is and would like to understand why it is so low?
Is it because it includes all the tax credits for working for families? Or is it because at the top end very little tax is being paid as a proportion of total income?
"... and would like to understand why it is so low?"
Wallets are shut. little GST. Fewer profits to tax.
Pretty simple really. Does it need to be that way?
Nope. But the RBNZ and the new government feel that making the rich (net savers) even richer will save us all.
"Blown away with how low this number is and would like to understand why it is so low?"
(now that I'm on the same page .... Sorry, JamesM & Speedmax)
This is where focusing on income taxes alone is pretty silly.
For example, NZ is basically alone in the OECD by placing GST on foods at the full rate. Further, many OECD countries provide 'non-cash' benefits, e.g. low rent public housing, that NZ doesn't but instead provides 'cash benefits' in the form accommodation supplements.
Without taking the full raft of taxes into account (stamp duty, property taxes, CGT, etc. etc.), and accounting for cash vs. non-cash benefits the income tax numbers alone are meaningless (but those with axes to grind will love trotting them out as gospel to prove whatever point they're trying to make.).
The Big Short - about how the 2008 US sub-prime mortgage crisis triggered the GFC - is on Bravo at 8:30pm tonight.
If you've never scene it - this is must watch for any investor (and voter)!
Its truly time to remind all in NZ, on the lessons shown in the Big Short.
https://www.youtube.com/watch?v=vgqG3ITMv1Q
But in NZ, its just rinse and repeat...... we learn little and bid assets up into the clouds.
The USA a totally different market with totally different rules and regulations. From my experience the Americans end up doing pretty much everything the wrong way. What happened there with housing and lending was just nuts, in fact I have watched that movie like 3 times and still don't understand how they could end up with that sort of structure, still pretty much nobody ended up in jail and they have slipped back to doing the same thing all over again.
Different really!!!!???
When our local banks were stitching Tens of Thousands of people up with risky mortgages at 7x 8x 10x 11x 12x DTIs and then testing them at a worst-case scenario at 5.8% mortgages !
Then, we now have our money worth 20% less, to pay mortgages on homes they cannot afford to either own or sell !
We're different to the USA before the GFC? You must be joking right?
NZ is worse.
There are none so blind, as those that refuse to see.
Different spots, yet same dogsheit loans.
These loans, that have both become unpayable for a small, yet worrying proportion of the population, have simarlarities
You don't see the striking ryhme of history here?....... of the low teaser rate of the risky ARM loans 2, 3, 4%.......that caused a housing boom, still at lower DTI MULTIPLES Than Nz, loans that quickly reset to 5, 6,7,8%.....
The NZ market is a total risky ARM market!!!
No 15 or 30yr terms as most yanks take out.
Then as your Mate TA says ....."a short term housing breather, resumption to crazy lofty heights will be back soon, buynow beequick, it just an itsy bitsy gully"......
All the same REA bs.
In both cases, the banks got greedy.
Our NZ loans got more mountainous and our valuations got more alpineous.......our crash is already deeper than what transpired in the USA OVER 6 YEARS.
WERE JUST ENTERING YEAR 3, OF THIS MULTIYEAR CRASH.
Even a blinkered, blind Freddy can see it?
OK, say your take is right.....
Regardless, NZ is now in the same situation as USA IN 2007/8 ........a small, yet significant, market moving proportion if the loan market, just cannot pay current mortgage rates.
The NZ banks number crunches are all shisting bricks as to what they have done and created.
We have only just entered this dark hole......
How many 9x DTI (or more) mortgages were written, can you point to this information?
You're talking about 10s of thousands, my understanding is that even though we don't have a formal DTI, banks themselves are fairly hesitant handing out cash once someone is at around 8x.
Pre GFC we were probably worse, you could get 110% mortgages.
Is the average FHB an average earner? And what's their average age?
Could even be lower then.
Regardless, the central banks will need to see some more destruction before doing anything to save people over leveraged.
But it should be clear to most that house prices are going to drop because the economy has shat the bed. It won't be the interest rate that did it, it'll be the lost or shrunk incomes from the money being sucked from the rest of the economy.
According to this link 25 - 29 year olds average = $33.60 per hour = $69k p.a. Not guaranteed that both will be earning that much, could be more, could be less.
I'd say 25 - 29 is an average FHB age. Maybe if you go 30 - 34 then could add $10k per employee.
But is the average FHB?
I'd suggest higher income earners make up a disproportionate number of FHBs. I.e they're not the average income 25-30 year old.
Edit: average FHB is 37 years old.
Oh, and
The average gross income for first home buyers was $152.6K in June, up from $149.7K in March2, while the average gross income for other owner occupiers without investment property collateral increased to $203.0K, up from $199.4K in March.
Thanks. Found the release. Also this bit where DTI above 7 is below 2%.
A far cry from Gecko's claim of 8, 9, 10, 11, 12x DTI. I guess if someone has a negative mindset they'll doomscroll data and distort the facts to suit their narrative.
The monthly share of lending to first home buyers with DTI > 7 fell to 1.5% in June, down from 1.8% in March.
https://www.rbnz.govt.nz/-/media/project/sites/rbnz/files/statistics/se…
"The Big Short doesn't apply to Nu Zillun."
I take your point that our mortgage market is somewhat different. But it's impossible to deny NZ wasn't affected along with just about every other country. And, as the end of movie makes clear, it'll happen again. Just as it happened before the GFC on numerous occasions ... Roughly about once every generation when measured over the longer term and depending on the criteria used to classify them. (And on many classifications, they occur even more frequently. And guess what? Central bank actions are contributing to them more and more.)
Hospitals asked to save $105 million by July: https://www.1news.co.nz/2024/04/26/hospitals-asked-to-make-more-than-80…
Folk who are waiting for elective surgery might need to knuckle down to help fund tax cuts for property speculators.
The measures we are taking are designed to help tighten management controls over budgets so we live within our means.
I wonder how many landlords lived within their means during the times of low interest rates? Or do they need mortgage interest deductibility even more today because of higher interest rates coming off a low base of leveraged debt stacking? I wonder how many landlords were tax payers when interest rates were 3%, and are no longer tax payers at 6%+?
The info is all there, if the DTI blind, do indeed wish to see......
The average FHB borrower had 151k income as at Dec 2023. Its higher than the average household income, which is around 120k
dti-key-points-december2023.pdf (rbnz.govt.nz)
Most banks are now restricting almost all of their lending to not exceed a 6xDTI. This was not the case from 2020 to 2022.
Any borrowing at 7xDTI or higher is at a seriously risk of Default. Paying more than 25 to 28% of income, for shelter is the wrong end of economic resilience.
This restriction to the upcoming regulation of a 6xDTI, is exacerbating this midway NZ housing market crash, that will make the 20 year Ireland crash look middling.
The uber high DTI borrowings occurred over the years 2020, 2021 and 2022. Many of these loans are now stressed and just unpayable my many, who are required to pay more that the stress tested rates.
Obvious to blind Freddy right?
Latest stats have these delinquent borrowers in NZ, at more than 22,000. This will shoot past 25,000 in short order, over 2024.
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